De Gruyter Open

From December 2015 Agricultura journal will be published in partnership with De Gruyter Open (degruyteropen.com), the world's second largest publisher of Open Access academic content, and part of the De Gruyter group which has over 260 years of publishing history. De Gruyter Open closely cooperates with the majority of abstracting and indexing services, universities and libraries, providing a wide availability of journal's content and increasing its visibility. Agricultura's full-text articles will be found also at the new address on the De Gruyter Open's platform in following weeks.


Publishing support

Publishing of the journal Agricultura is financially supported by Slovenian Research Agency.

Izdajanje revije Agricultura je finančno podprto s strani Javne agencije za raziskovalno dejavnost Republike Slovenije.


Our Profile

The journal AGRICULTURA (A) publishes scientific works from the following fields: animal science, plant production, farm mechanisation, land management, agricultural economics, ecology, biotechnology, microbiology
ISSN 1581-5439
Karmen PAŽEK and Črtomir ROZMAN
pp. 13-17

The latest developments in investment analysis offer a number of valuable insights into possible ways of evaluating investment opportunities, encountering the weaknesses of net present value criterion. More specifically, irreversibility, uncertainty and the choice of timing are conditions that Net Present Value does not include but they alter the investment decision in a determinant way. By employing contingent claims analysis in tangible investments better assessment results can be derived. In this paper, an emphasis is made to modify the Net Present criterion by incorporating the real options approach. Its application is demonstrated in an organic spelt production and processing. The Net Present Value indicates that the decision of a spelt processing for animal fodder is unfeasible (NPVt = - 1.144,84 €) while the real options approach differentiates the results by organic spelt grain production for human nutrition (strategic real option of spelt grain, NPVSRO = 127.96 €). The conclusion is that the real options approach can be proved useful when assessing projects with uncertainty and irreversibility and it can provide a new way of examining agricultural investment decisions.

Key words: real options, Net Present Value Analysis, Black-Scholes model, organic spelt processing


Slovenian:

Uporaba realnih opcij za oceno poslovnih alternativ pri predelavi pire

Raziskave s področja investicijske analize kažejo možnosti uporabe več pristopov za oceno investicijskih priložnosti, katere pa lahko vključujejo tudi določene slabosti ocenjenega parametra neto sedanje vrednosti. Definirano natančneje, ireverzibilnost, negotovost in časovna komponenta so tisti pogoji, ki jih neto sedanja vrednost kot taka v sami oceni sicer ne vključuje, imajo pa pomembno vlogo pri deterministični oceni investicije. Z upoštevanjem prej navedenih pogojev, je ocena investicije realnejša. V prispevku je prikazana modifikacija parametra neto sedanje vrednosti, upoštevajoč metodologijo realnih opcij. Aplikacija slednjega je prikazana na primeru pridelave in predelave pire. Ocena neto sedanje vrednosti kaže, da je poslovna alternativa predelave pire za potrebe krme živalim finančno neupravičena (NPVt = - 1.144,84 €), medtem ko je pridelava in predelava pire za potrebe prehrane ljudi upravičena (NPVSRO = 127,96 €). Zaključimo lahko, da je uporaba metodologije realnih opcij uporabna predvsem pri projektih, kjer imamo opravka s pogoji negotovosti in ireverzibilnosti.

Ključne besede: realne opcije / neto sedanja vrednost / Black – Scholes model / ekološka predelava pire


CITATED REFERENCES :

1. Amram M, Kulatilaka N. Real Options: Managing Strategic Investment in an Uncertain World. Boston, Massachusetts, Harvard Business School Press, 1999.

2. Brennan M, Schwartz E. Evaluating natural resource investments. Journal of Business 1985; 58:135-157.

3. Collins R, Hanf CH. Evaluation of farm investments: Biases in Net Present Value estimates from using quasi-deterministic models in an uncertain world. Agric. Finance Rev. 1998; 58:81-91.

4. Dixit A, Pindyck R. Investment Under Uncertainty. Princeton University Press, Princeton, NJ, 1994.

5. Ekboir JM. Technical change and irreversible investment under risk. Agricultural Economics, 1997; 16/1: 54-65.

6. Gitt inger, J.P. Economic analysis of agricultural projects. United States of America, International Bank for Reconstruction and Development, Th e Johns Hopkins University Press, Baltimore, U.S.A., 1986.

7. Hadelan L, Njavro M, Par V. Option Models in Investment Appraisal. 43rd Croatian & 3rd International Symposium on Agriculture February 18-21, Book of Abstracts, 2008;47-48.

8. Khanna M, Isik M, Winter–Nelson A. Investment in sitespecific crop management under uncertainty: implications for nitrogen pollution control and environmental policy. Agric. Econ. 2000;24:9-21.

9. Leuhrman T. Investment Opportunities as Real Options. Harvard Business Review, 1998; July – Avgust.

10. McDonald R, Siegel D. Investments and the valuation of firms when there is an option to shut down. Inter. Econ. Rev. 1985;26:331-349.

11. Morgan DG, Abdallah SB, Lasserre PA. Real Options Approach to Forest-Management: Decision Making to Protect Caribou under the Th reat of Extinction. Ecol. Soc. 2007;13/1:27.

12. Musshoff O, Odening M. Adoption of Organic Farming. Real Options, Th eory Meets Practice, 9th Annual International Conference, Paris–France, June 22-25, 2005.

13. Pažek K, Rozman Č, Borec A, Turk J, Majkovič D, Bavec M, Bavec F. Th e use of multi criteria models for decision support on organic farms. Biol. Agric. Hortic., 2006; 24/1:73-89.

14. Price TJ, Wetzstein ME. Irreversible investment decisions in perennial crops with yield and price uncertainty. J. Agric. Res. Econ. 1999;24:173-185.

15. Purvis A, Boggess WG, Moss CB, Holt J. Technology adoption decisions under irreversibility and uncertainty: An Ex Ante approach. Am. J. Agric. Econ. 1996; August:541-551.

16. Rovčanin A. Opcioni pristup vrednovanju kapitalnih ulaganja. Ekonomski pregled, 2005;56/7-8:544-554.

17. Rozman Č, Pažek K, Bavec M, Bavec F, Turk J, Majkovič D. The Multi-criteria analysis of spelt food processing alternatives on small organic farms. J. Sustain. Agric., 2006;28:159-179.

18. Tegene A, Wiebe K, Kuhn B. Irreversible investment under uncertainty: Conservation easements and the option to develop agricultural land. J. Agric. Econ. 1999;50/2:203-219.

19. Tzouramani I, Matt as K. Employing real options methodology to evaluate the organic agriculture scheme in Greece. 87th EAAE-Seminar. Assessing rural development of the CAP, 2004.

20. Turk J, Rozman Č. A feasibility study of fruit brandy production. Agricultura, 2002;1/1:28-33.

21. Turk J. Teoretične in empirične analize v agrarni ekonomiki. Univerza v Mariboru, Fakulteta za kmetijstvo, Maribor, 2001.

22. Winter – Nelson A, Amegbeto K. Option values to conservation and agricultural price policy: Application to terrace construction in Kenya. Am. J. Agric. Econ. 1998;80:409-418.

logo dg open        cm stacked 064 plain